Follow the Market, Not the Noise

We are always looking for something give us a leg up in trading; some news article, pundit on TV or even a whisper from a friend. But do they really know where the market is headed? What I have always found is these tend to have little to no value as it relates to my option trading, my thesis mostly dictated by the charts and technicals. It is here where the answers lie for me, I will always listen to the message of the markets and not anything else to guide me in the trade.

Markets are off about 4% now from all time highs, a pretty nice correction and testing of moving average support. When the SPX 500 was skying to 1700+ many were out there calling for a 3-5% pullback. Well, here we are – and the dip buyers came in tepidly this week with so much potentially wacky news events out there. Yet, those calling for a short correction now say more is coming.

Did you here strategist Ralph Acampora recently? First, he was so bullish that he was calling for Dow 17K, but a few weeks later he’s saying Dow 12K. Now, I understand markets move and will make you change your mind, but Ralph is a long term strategist (technically-driven) and is not apt to change his view so quickly. Will he change his mind again? And if so, will you be suckered into his prediction, because now he is on record with both a high number and a low number. Sets himself up to be right in either scenario.

Our landscape is littered with gurus, experts and pundits giving really bad advice. CNBC started trotting out statistics on Thursday, because, well, what else are they going to talk about?

The market will tell you what to do. If I am long bullish names as I have been, I love uptrend days to unload stuff. Monday and Tuesday were perfect examples. I took advantage of good demand and higher prices in order to book winners and take losers off my board.

I’m also hearing some doubts about the economy, and of course we are seeing some rather weak data. This may portend some economic headwinds down the road (namely early 2014), but the data predicted this market six or eight months ago. However, the market is not seeing any reason to be cautious.

I heard some guy recently comparing this market to 1999 and a frightful end because of scary heights. Funny, I was trading in 1999 and it was one of the best years ever for the markets and for tech. Absurd price levels? You bet, and if you were short that year, you got hung out to dry. If anything, the second half of 2000 was the period to be worried about, because it predicted a miserable 2001-2002, as the bear market in tech was in plain view.

And then there is the bond market, quantitative easing and the Fed. If I had a dollar for every prediction about the process and the outcome, I would have millions. Where and when do you get in the markets? Fed policy has made equity markets a fertile playing ground for a few years. This is when we see the latecomers arrive at the party — at a time when I’m exiting, if only to keep the gains I have accumulated. I won’t worry about missing out on further gains.

I am in opportunistic mode here, booking gains where I have them and picking off ideas that have potential as I read the charts and technicals. I have been making far more bullish plays, because the trend is in place for the markets to rise higher. But overall, I’m not bullish or bearish, and someone on the sidelines who is getting involved at this late stage would face challenges.

More importantly, I have been paying attention to what the markets are telling me. Turn off the noise, follow the action of the market and you’ll be in a much better place.

Founder and Portfolio Manager — Bob has been trading options for himself and private clients for more than ten years. He uses a unique combination of technical indicators to find the best trending stocks that exhibit enormous velocity and ferocious movement. He often gets in front of these moves before they happen. Patience is… read more

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